As a lawyer who is also a registered investment adviser, can I pay a referring attorney a referral fee out of the commission I earn from a client's investment business?

Plain-English summary

The attorney is a registered general securities agent and a registered investment adviser. The attorney asked whether, acting solely in the capacity of an investment adviser, he or she may pay a referral fee to a referring attorney from funds derived from a commission paid as a result of a client using the investment services.

The opinion quotes Rule 5.4(c), under which a lawyer shall not permit a person who recommends, employs, or pays the lawyer to render legal services for another to direct or regulate the lawyer's professional judgment, and Rule 1.8(f), under which a lawyer shall not accept compensation for representing a client from someone other than the client absent client consent, no interference with independence or the client-lawyer relationship, and protection of information under Rule 1.6. The opinion concludes that the investment-adviser attorney may not pay another attorney a referral fee from commission proceeds under the cited Rules.

The opinion adds that under Rule 8.4(a) it is misconduct for a lawyer to violate or attempt to violate the Rules, or to knowingly assist or induce another to do so, and that even though the inquiring attorney is acting as an "investment advisor," the attorney must still abide by the Rules of Professional Conduct in all circumstances. The opinion limits itself to the Rules and does not reach the State Ethics Code.

In practice

Under this opinion, the lawyer cannot escape the fee rules by wearing the investment-adviser hat: the referral fee from commission proceeds runs afoul of Rules 5.4 and 1.8, and Rule 8.4(a) bars using another person to accomplish what the Rules prohibit. The opinion's central point is that a lawyer's non-legal role does not suspend the Rules of Professional Conduct.

Common questions

Q: Can a lawyer acting as an investment adviser pay a referral fee to a referring attorney?

A: No. The opinion concludes the lawyer may not pay another attorney a referral fee from commission proceeds under Rules 5.4 and 1.8.

Q: Does acting in a non-legal capacity exempt the lawyer from the Rules?

A: No. The opinion states that even acting as an "investment advisor," the attorney must still abide by the Rules of Professional Conduct.

Q: What role does Rule 8.4(a) play?

A: The opinion cites Rule 8.4(a) to note that it is misconduct to violate the Rules or to knowingly assist or induce another to do so, or to do so through another's acts.

Background and rules framework

The opinion interprets Rhode Island Rules of Professional Conduct 5.4 (professional independence of a lawyer), 1.8 (conflict of interest: prohibited transactions), 8.4 (misconduct), and 1.6 (confidentiality), analogs of the corresponding Model Rules. Rule 5.4(c) protects the lawyer's professional judgment from third-party direction; Rule 1.8(f) conditions third-party compensation on consent, independence, and confidentiality; Rule 8.4(a) bars violating the Rules through another.

Citations and references

Rules of Professional Conduct:

• MR 5.4 / RI RPC 5.4(c) (professional independence; third-party direction)
• MR 1.8 / RI RPC 1.8(f) (compensation from someone other than the client)
• MR 8.4 / RI RPC 8.4(a) (misconduct; violating the Rules through another)
• MR 1.6 / RI RPC 1.6 (confidentiality; referenced via Rule 1.8(f))

See also

• RI EAP Opinion 93-52: a firm-letterhead collection agency arrangement violates 5.4/5.5/7.1/4.1
• RI EAP Opinion 93-25: a lawyer serving a nonprofit arts-consulting corporation under 5.4/6.3

Source

• Landing page: https://www.courts.ri.gov/attorney-resources/Pages/Ethics-Advisory-Panel-default.aspx
• Original PDF: https://www.courts.ri.gov/Opinions/EAP%2093-54.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

(FINAL)
ETHICS ADVISORY PANEL
OPINION #93-54, REQUEST #395
Issued July 28, 1993

The attorney is a registered general securities agent and a registered investment adviser. The attorney asks whether he/she may, acting solely in the capacity as an investment advisor, pay a referral fee to a referring attorney from funds derived from a commission paid as a result of a client using investment services.

Rule 5.4 entitled "Professional Independence of a Lawyer" states that:

(c) A lawyer shall not permit a person who recommends, employs or pays the lawyer to render legal services for another to direct or regulate the lawyer's professional judgment in rendering such legal services.

Rule 1.8 entitled "Conflict of Interest: Prohibited Transactions" provides that:

(f) A lawyer shall not accept compensation for representing a client from one other than the client unless:

(1) the client consents after consultation;

(2) there is no interference with the lawyer's independence of professional judgment or with the client-lawyer relationship; and

(3) information relating to representation of a client is protected as required by Rule 1.6.

The Panel opines that the investment advisor attorney may not pay another attorney a referral fee from the proceeds of a commission pursuant to the Rules cited above. In addition Rule 8.4(a) entitled "Misconduct" states that "It is professional misconduct for a lawyer to: (a) violate or attempt to violate the Rules of Professional Conduct, knowingly assist or induce another to do so, or to do so through the acts of another; . . ." Even though the inquiring attorney is acting as an "investment advisor," he/she must still abide by the Rules of Professional Conduct whatever the circumstances.

The Panel's guidance is restricted to interpretations of the Rules of Professional Conduct and does not extend to issues under the State Ethics Code or any other rules, regulations or laws that may have bearing on the issue raised by this inquiry.